Fleeing FIE bosses leave problems behind

Monday, Aug 19, 2013 08:00

Over the last few years, many leaders of foreign-invested enterprises (FIEs) have fled the country for various reasons including mounting losses and outright fraud, creating problems not just for employees but also commercial banks and tax agencies.—Photo baodautu

by Compiled by Le Hung Vong

Over the last few years, many leaders of foreign-invested enterprises (FIEs) have fled the country for various reasons including mounting losses and outright fraud, creating problems not just for employees but also commercial banks and tax agencies.

According to the Ministry of Planning and Investment, by the end of June 2013, the bosses of 518 FIEs with a total registered capital of US$903 million have fled Viet Nam, leaving big arrears in workers' salaries, tax payments, bank loans and social insurance premiums.

In southern Dong Nai Province, 54 FIEs with a total registered capital of $173 million have suspended operations. The bosses of 29 of these FIEs have left the country.

In late July 2013, customers of the Tricon Tower in Ha Noi's Hoai Duc District asked managers of Minh Viet JSC – the investor – to return the money they had paid the company for purchasing apartments.

However, they have received no response because the "true boss" or Chairman of the board of Minh Viet JSC, has escaped with some VND400 billion paid by the home-buyers, the Tuoi Tre (Youth) newspaper reported.

The boss of Ado Vina Ltd in southern Binh Duong Province is also absconding, leaving the company's factory closed and arrears of over VND8 billion ($381,000) in bank loans and VND500 million ($23,800) in workers' salaries and insurance premium.

According to the Binh Duong Department of Planning and Investment, the bosses of nearly 20 enterprises among over 2,100 FIEs in the province are missing.

Le Viet Dung, Deputy Director of the Binh Duong Department of Planning and Investment, said relevant authorities have found it difficult to solve problems left by the runaway FIE bosses.

Typically, the assets of enterprises that have been left in the lurch are worth almost nothing because the facilities have been rented, so there is no way to pay up the tens of billions of dong owed in workers' salaries, insurance premiums and loan repayments.

Dung said they have asked the diplomatic corps to help find the FIE bosses, but all such efforts have proved futile.

Localities have to seek loans to pay workers' salaries so that they can minimize the social impacts, Dung told Tuoi Tre.

In a recent report, the Ministry of Planning and Investment admitted that there was no effective measure to prevent FIE bosses from abandoning their facilities in the country.

The current Investment Law does not include any term allowing relevant authorities to withdraw the investment license of an FIE after its investor or manager flees the country.

Stagnant markets

Local producers have been forced to bring steel prices down with the domestic market remaining stagnant and Chinese steel selling at much lower prices.

Nguyen Tien Nghi, Deputy Chairman of the Viet Nam Steel Association, said the local steel market has been stagnant since last year, impacted by the real estate market situation and the slowdown of construction projects across the country.

Steel prices reached their peak at VND20 million ($945.6) per tonne three years ago before going down to VND17 to VND18 million per tonne last year and VND14 to VND14.5 million ($685.5 million) per tonne in August 2013.

The lower prices, however, have not boosted sales. Steel consumption in the local market this year is estimated at 300,000 tonnes per month compared to 400,000 tonnes per month in 2012.

As a result, inventories have risen to nearly 350,000 tonnes of steel and 450,000 tonnes of steel billet.

Local businesses say they are facing unfair competition from Chinese products that are selling at VND1 million ($47.6) per tonne lower than domestically produced steel.

Many local firms have had to cut production by 50 per cent while others are facing closure.

To make things worse, the recent electricity price hike has forced them to push their prices further up, making their products even less competitive.

In the first seven months of 2013, Viet Nam imported over 1.2 million tonnes of steel alloy, which contains boron and enjoys 0 per cent preferential tax (compared with 5 per cent tax for other kinds of steel).

According to the VSA, boron accounts for just 0.0008 per cent of the steel alloy, which is allowed to be used in construction projects.

Traders believe that steel alloy imported from China has a 10 to 14 per cent market share. In addition to zero per cent tax in Viet Nam, Chinese firms enjoy tax refunds of nine per cent on their exports of this steel product.

Safety net

The Viet Nam Food Association (VFA) has said it will introduce a new contract to prevent cancellations of rice export deals, something that has happened far too frequently in recent months.

According to Pham Van Bay, Deputy Chairman of VFA, both sellers (local firms) and buyers (foreign companies) have cancelled rice export contracts, but buyers have far outnumbered sellers.

Bay said the new VFA contract would give sellers legal grounds for taking buyers to court if it is breached unilaterally.

Most of the contracts that have been cancelled so far are commercial contracts signed by two companies, which are different from government-to-government contracts, said Bay.

Cancellation of rice export contracts on the sellers' side was often done by private companies that have not been allocated a quota to purchase rice for temporary storage or firms that have the quotas but are unable to access bank loans due to poor business performance and losses, Nguyen Tho Tri, deputy general director of the Viet Nam Southern Food Corporation (Vinafood2), told the Thoi Bao Kinh Te Sai Gon (Saigon Economic Times) newspaper.

However, most of the cases so far are a result of contracts signed when prices were low with a dense delivery schedule, creating high demand and pushing up domestic prices. In this situation, if exporters continued to buy rice to fulfill their contracts, they would suffer losses.

According to the association, in the first seven months, contract cancellations affected the export of nearly one million tonnes of rice, or about one-fourth of more than four million tonnes worth $1.8 billion that were shipped.

In July alone, local firms cancelled contracts for export of 180,000 tonnes of rice. — VNS

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